Global tree farms becoming more diverse

SEATTLE, WA, Mrz. 26, 2012 (RISI) - After five years, and repeated requests by clients, Dennis Neilson and I spent much of the last six months updating our in-depth look at investments in plantation forestry around the world. This was published in February 2012 as the Global Tree Farm Economics Review, and included a profile of commercial planted forest resources ("tree farms") in 60 countries. The core of the report was the 104 case studies we developed, which covered 30 species in 35 countries and a range of management regimes for growing pulpwood, sawlogs or biomass. In these case studies we compiled real-world costs of land, plantation establishment and maintenance, as well as expected harvest yields and stumpage rates, to use in calculating average growing cost per cubic meter and IRR.

In reflecting on the "lessons learned" from this 430-page work, Dennis and I were struck by what our choice of case studies reveals about the current state of the global timberland investment sector. The first edition of this report (1997) was initiated because investors were really just beginning to be interested in exploring timberland investments outside of North America. Of course, this interest has expanded over time, but when we did our research for the last edition (which was in the second half of 2006), investments outside of North America were still very narrowly focused. At that time, there was little interest by the vast majority of institutional investors in plantation forest projects in Africa or Southeast Asia, and the species and management regimes utilized in 2006 were almost entirely softwood sawlogs or eucalyptus pulpwood in "safe" geographies.

But this time we included a much more diverse group of case studies, reflecting the questions we have been receiving from clients in recent years and the new projects we see being developed/investigated for institutional timberland investors around the world. For example, this time nearly 10% of the case studies were on dedicated biomass plantations (including eucalyptus for charcoal in Brazil, short rotation coppice with poplar in Europe and eucalyptus in the US South). Twenty percent of our case studies were in Africa, and another twenty percent were in Asia. We included two rubberwood case studies from Southeast Asia, two bamboo case studies from India and even two carbon case studies from Oceania. In addition to the standard pine and eucalyptus species, we also included 11 case studies with teak (in 11 different countries), and one with a native species in Brazil, paricá, which is proving to be popular for tree farm development. Falcata and African mahogany were two other unusual species we included for the first time.

One of the biggest changes we noted in this edition was the rapid increase in land prices in many countries around the world. Because we compiled all of our case studies in US dollars, the weaker US dollar in 2011 vs. 2006 often accounted for a considerable portion of this cost appreciation. But Uruguay is a good example of a country where pressures from the booming agricultural sector have driven up land prices to the point where returns for new investors establishing greenfield plantations are no longer attractive.